Monday, February 20, 2017

Fear Of Economic Contraction Sweeps Wall St. Trading Floors

While investors have enjoyed their portfolio gains, Wall Street pros don’t share the same high spirits.

Fear of global economic contraction that could badly derail the US recovery — and throw a monkey wrench into the trading markets — is sweeping through Wall Street boardrooms, as managers intensify technology-driven cost-cutting and rein in spending.

One big wave hit last week with stunning force, with some of the largest job-loss announcements in recent memory.

“Yes, I think there will be more layoffs on Wall Street going forward, due to continued cost-cutting and automation,” Anthony Santoliquido, a fixed-income portfolio manager at HGK Asset Management in Jersey City, told The Post, as some pros battened down the hatches for the next round.

“This is happening everywhere,” Santoliquido added. “More of the processes on Wall Street have been automated, eliminating the need for human intervention.”

While headcount in financial services has steadily climbed back to an estimated 935,000 jobs nationwide, which exceeds pre-recession levels, many fear these numbers may have peaked.

Over the same time, the US population has climbed from 296 million in 2005 to an estimated 326 million this year, so Wall Street is hardly picking up this extra slack, analysts say.

“Look at the unemployment rate for 18- to 35-year-olds,” added Santoliquido, noting how the jobless rate for this cohort is much higher than it is for the general population. “And look at how many are living at home and with student debt.”

Santoliquido also says the overall economy, which drives the rise and fall of Wall Street, is masking higher unemployment numbers. “A great job has been done in creating new jobs, but many are in lower-paying service jobs,” he said.

And an increasing number of despondent workers have simply thrown in the towel. If the 4.5 percent reduction in the lower labor force participation rate since the early part of the century is taken into account, today’s official US unemployment rate jumps from 4.8 percent to approximately 8.5 percent, according to Santoliquido. (It is a conservative estimate permitting for some natural reduction in the participation rate.)

Last week, Wall Street itself was rocked.

Word leaked out that Goldman Sachs wouldn’t pay 2016 bonuses to about 100 bankers in mergers and acquisitions, a surprise move reportedly meant to push these “under performers” out the door. One executive at a cross-town rival greeted this news with skepticism, since the M&A sector should see massive grow over the next year.

“With all this talk of as much as $3 trillion being repatriated back to the US if corporate taxes are lowered under the Trump administration, what do these layoffs really say for M&A?” he asked. “Not much. It can’t be a good sign, because this is a lot of money that could be put to work in ordinary circumstance on deals.”

Then there was the announcement last week from Credit Suisse that it was preparing to eliminate 6,500 jobs, after a loss of $2.4 billion last year. Those losses mostly stemmed from a settlement with the US Department of Justice.